Wall St. Breakfast's Pre-Market Snapshot:
U.S. Futures As of 8:52 AM EST
S&P 500: -5.30; 1,535.00
NASDAQ 100: -6.00; 1,930.75
Dow: -38.00; 13,640.00
NIKKEI 225: +0.45%; 18,053.81 (+80.39)
HANG SENG: +0.54%; 20,842.15 (+112.56)
S&P/ASX 200: -0.35%; 6,370.80 (-22.10)
BSE SENSEX 30: +0.27%; 14,535.01 (+39.24)
FTSE 100: -0.45%; 6,634.20 (-29.90)
CAC 40: -0.72%; 6,081.87 (-43.94)
XETRA-DAX: -0.86%; 7,907.89 (-68.90)
Commodity Futures (Reuters/Jefferies CRB)
Oil: -0.60%; $65.81 (-$0.40)
Gold: +0.22%; $677.80 (+$1.50)
Natural Gas: -1.05%; $8.10 (-$0.09)
Silver: +0.18%; $13.77 (+$0.025)
U.S. Breaking News — see today's Wall Street Breakfast for earlier news
RBS Says It's Not in Talks With Bank of America to Resolve LaSalle Sale
Royal Bank of Scotland CEO Fred Goodwin said Tuesday his company was not in talks with Bank of America Corp. in an attempt to resolve the purchase of LaSalle Bank. ABN agreed in April to sell LaSalle to BoA for $21 billion, and at the same time to sell itself to Barclays Bank. A Dutch court froze the LaSalle sale and ordered that it be subjected to a shareholder vote. In the meanwhile, RBS made a hostile bid for ABN that bested Barclays' bid, but said it wants all or part of LaSalle, and made its offer contingent on the cancellation of ABN's deal with BoA. BoA has sued ABN to enforce the sale. On May 31, the Wall Street Journal reported that RBS and BoA had discussed dividing LaSalle, and that they were near an agreement when talks had to be suspended so RBS could make its €71.1 billion ($95.6 billion) bid for ABN. The Journal said talks were expected to resume, and that Goodwin was expectant of an agreement. It said the deal would give RBS LaSalle's commercial business, Michigan branches, HQ building and brand name, while BoA would take the 141 LaSalle retail branches based in Chicago. But in a conference call Tuesday, Goodwin apparently backtracked, saying of the LaSalle negotiations, "I don't see any particular urgency on the subject... I'm happy to have a conversation, we've had one before... if one happens it happens, if it doesn't it doesn't." RBS also said its plan would result in fewer job cuts (19,000) than Barclays' (23,600) -- both estimates exclude LaSalle.
Sources: Reuters, Seeking Alpha
Commentary: ABN Mulling RBS Consortium Bid; Supervisory Board Enters Takeover Fray • ABN Amro Opposes RBS-Led Rival Bid for LaSalle • ABN Shareholders Determined to Thwart LaSalle Sale to BoA; RBS-Led Consortium Reiterates Rival Bid
Stocks/ETFs to watch: ABN Amro Holding N.V. (ABN), Barclays PLC (NYSE:BCS), Royal Bank of Scotland Group plc [ADR] (RBSPY), Fortis NV [ADR] (FORSY), Bank of America Corp. (NYSE:BAC). Competitors: HSBC Holdings plc ADR (HBC), Deutsche Bank AG (NYSE:DB), UBS AG (NYSE:UBS). ETFs: iShares MSCI Netherlands Index (NYSEARCA:EWN), streetTRACKS KBW Bank (NYSEARCA:KBE), HOLDRS Regional Bank (NYSEARCA:RKH)
Moody's Raises FY Guidance Again, But Mostly In-line with Street Estimates
Moody's raised its full year '07 outlook for the second time in two months. However, it expects a 1.5% decline in operating margin due to investments in expansion and new products/technology. Also, the high-end of its EPS guidance puts it mostly in-line with analysts' average estimate. Its shares are down more than 1% to $70.26 in thin pre-market trading. Moody's upbeat outlook reflects higher growth expectations for its U.S. structured finance business and high-teens to 20% growth in its overseas operations. Overall revenue growth is now expected in the mid- to high-teens, with diluted EPS growth in the low to mid-teens excluding a one-time real estate sale gain. At 16% EPS growth (2006: $2.25/share), Moody's matches analysts' average estimate of $2.61/share. Moody's had previously forecast low double-digit EPS and sales growth. Shares of Moody's gained 2.8% to $71.02 in normal trading Monday, but lost 0.8% to $70.45 in extended trading on volume of more than 127,000.
Sources: Press release, Associated Press, Reuters
Commentary: Moody's and Standard & Poor's (McGraw-Hill): Investing in the Analysts • Rating Agencies Could be Liable for Investor Losses -- Study • Warren Buffett: Buys, Sells, Portfolio
Stocks/ETFs to watch: Moody's Corp. (NYSE:MCO). Competitors: The McGraw-Hill Companies, Inc. [owner of Standard & Poor's] (MHP)
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Today's Market (via Sam Collins, ChangeWave.com)
Recap of Yesterday's Action
Despite a, 8%-plus sell-off on the Shanghai exchange, the U.S. markets felt little impact, and world markets recovered after an initial bout of selling.
With crude oil higher and the 10-year Treasury note above 5% (intraday) for its highest yield since August, the only positives yesterday were an agreement from Flextronics (NASDAQ:FLEX) to purchase Solectron (SLR) for $3.6 billion and a private deal in which Elevation Partners will take 25% of Palm (PALM).
Wal-Mart (NYSE:WMT) continued higher following its Friday announcement of a huge share buyback, and General Electric (NYSE:GE) rallied on a Barron's article that suggested that a spin-off could result in the parts being worth more than the whole. Avaya (NYSE:AV) rose 4% on a story from The Wall Street Journal saying that it is close to being bought out. But, overall, it was a sluggish day of trading with lower volume and buyers only surfacing in the last hour to rescue the session.
At the close Monday, the Dow was up eight points at 13,676, the S&P 500 gained three points at 1,539, and the Nasdaq rose four at 2,618. Volume on the NYSE came in at just 1.4 billion shares, and 1.9 billion traded on the Nasdaq. Advancing stocks exceeded decliners by 19-to-13 on the New York and 15-to-14 on the Nasdaq.
Crude oil (July contract) was up $1.13 at $66.21 and the Amex Energy SPDR (NYSEARCA:XLE) set another new closing high at $69.92, up $1. Gold (June contract) fell 50 cents, closing at $670.70 per troy ounce, and the Philly Gold and Silver Index [XAU] lost 48 cents to close at $141.94.
Last week, the Dow Industrials rose 161 points, or 1.2%, to another new high for the eighth gain in nine weeks. But the real news was that the S&P 500 finally joined the party by breaking through its previous March 2000 high and gained 1.4% for the week.
The Nasdaq has a long way to go before its high is even in sight, but last week it made progress toward that goal by gaining 2.2%. And the Dow Transports made another new high with a 3.5% gain, while the Dow Utility Average added 1.3%.
But bonds flashed a warning as the yield on the 10-year Treasury note approached 5%, the area that many analysts say could impact stocks by drawing funds to those instruments.
There was plenty of economic data to absorb, too. Q1 GDP was adjusted by half to just a 0.6% growth rate (the worst in five years), factories are rebuilding supplies and so the Institute for Supply Management's manufacturing survey suggests that Q2 will be better, non-farm payrolls came in higher-than-expected, consumer confidence numbers were stronger than forecast, the unemployment rate held steady at 4.5%, the average hourly earnings rose 0.3% for May (and 3.8% in a year), construction was essentially unchanged, personal consumption expenditures rose by 0.3% in April, and the core PCE number increased by just 0.1%, bringing the year-over-year gain to 2% -- and that's within Fed guidelines. Oil fell $12 per barrel and gold surged by $16 per troy ounce.
And finally, the American Association of Individual Investors survey showed just 33% bulls and 45% bears -- when will they ever learn?
What the Markets Are Saying
With all of the focus on the Dow Industrials making more new highs and the S&P 500 finally breaking its old high, we sometimes forget the other Dow averages, which are performing well, too. In fact, the Dow Jones Utility Average is up 13.4% this year and its cousin the Transportation Average is not only up more than 16% but it also made another new high yesterday. This illustrates both the broad-based nature of the bull market as well as its focus on quality issues.
Despite that, though, some are saying that today's stock market is overpriced and that we are experiencing another period of "irrational exuberance." However, the contrast between today's valuations and those of 2000 are enormous.
The dominant index six years ago was the Nasdaq, which topped off at a closing high of 5,132. Yesterday, the Nasdaq closed at 2,618, which means it would have to rise more than 2,400 points before reaching that old high made in March 2000. The P/E multiple on the S&P 500 is now at 17 times earnings, compared to 28 in 2000. So, this market is not overvalued -- in fact, all of this is serving as more evidence that we probably have a long way to go before we reach that level.
Today's Trading Landscape
This will be a slow week for earnings. Today look for Brown-Forman (NYSE:BF.B) and FuelCell Energy (NASDAQ:FCEL). The only economic report today is the Institute for Supply Management's non-manufacturing index at 10 a.m. One focus of the day will be Fed Chairman Ben Bernanke's speech in South Africa -- and the question, as always, will be whether he will comment on a cut in interest rates.
Asian Headlines (via Bloomberg.com)
• Asian Stocks Rise to a Record, Led by Cnooc on Oil Price; Hon Hai Advances Asian stocks climbed, sending a regional benchmark to a record, after crude-oil prices traded near a two-week high and HSBC Holdings Plc raised its targets for Cnooc Ltd. (NYSE:CEO) and PetroChina Co.'s (NYSE:PTR) shares.
• China's Stock Index Gains, Rebounding From Loss of as Much as 7.5 Percent China's key stock index rose 3.5 percent, rebounding from an earlier loss, on speculation the government will take steps to halt a rout that wiped out more than $400 billion of market value in less than a week.
• ICICI Bank May Sell $2.5 Billion of Stock Overseas, People Familiar Say ICICI Bank Ltd. (NYSE:IBN) may raise $2.5 billion in the biggest overseas share sale by an Indian company, three people with direct knowledge of the matter said.
• Hong Kong Exchange Seeks Advisers to Plan Commodities Derivatives Market Hong Kong Exchanges & Clearing Ltd., manager of Asia's third-biggest stock market, may choose advisers as early as this month to study the creation of a commodities derivatives exchange, Chairman Ronald Arculli said.
• Koll Quits as Merrill's Chief Economist for Japan to Start Investment Firm Jesper Koll, one of the best-known foreign commentators on Japan's economy, resigned from Merrill Lynch & Co. (MER) in Tokyo to form an investment company.
European Headlines (via Bloomberg.com)
• European Stocks Fall, Led by Ryanair, Air France-KLM; BHP Billiton Gains European stocks declined, led by airlines after Ryanair Holdings Plc (NASDAQ:RYAAY), the region's biggest low- fare carrier, forecast losses in the second half of the year. Air France-KLM Group (AKH) paced the drop.
• Ryanair Forecasts Profit to Grow 5 Percent, the Slowest Pace in Four Years Ryanair Holdings Plc (RYAAY), Europe's biggest low-fare airline, forecast profit will grow at the slowest rate in four years in fiscal 2008 as the company slashes ticket prices to attract passengers.
• Services Growth Picks Up in Europe, Supporting Case for Higher ECB Rates Expansion in European service industries, the biggest part of the economy, gained pace for the first time in four months in May, supporting the case for higher European Central Bank interest rates.
• Trichet's Split With Protege Noyer on Money Supply Clouds ECB Rate Outlook European Central Bank chief Jean-Claude Trichet has parried criticism from Nicolas Sarkozy, the new president of his native France. Fresh doubts from Trichet's protege at the French central bank may be harder to ignore.